 "Arun Jaitley")
Factors like the Chinese devaluation of yuan and the US Fed’s likely interest rate hike are “transient” and it will be only the real economy that will dictate the currency rate fluctuations and markets in India, says Finance Minister Arun Jaitley.
He asserts that India is on a “sound footing” as manufacturing and services sectors have begun picking up and the government was focused on strengthening the real economy rather than being swayed by the market volatility.
“At this stage, one needs to distinguish between the real economy and the impact of currency devaluation on stock market and domestic currency. Eventually when this transient phase blows over, it is the real economy that is going to matter.”
“That is what will dictate both the currency valuation and the stock market itself,” Jaitley told PTI in an interview on the sidelines of the G-20 meeting of finance ministers and central bank governors that ended here on Saturday.
As the Chinese devaluation triggered a global market sell off, including in India in the past few weeks, the issue dominated the G-20 meeting here and in the communiqué issued at the end of the meeting last night the 20 big economies, including India and China, committed themselves to refrain from competitive devaluation. They called for moving towards market-determined currency rates.
In his intervention at the G-20 meeting yesterday, Jaitley strongly pitched for global safety nets to address concerns over volatility in currency and stock markets, a demand that came against the backdrop of the economic shocks triggered by the Chinese devaluation of yuan.
He also sought well-designed and quickly-triggered safety nets under IMF by strengthening of liquidity arrangements by multilateral swap arrangements between member countries to tackle negative spillovers arising from domestic action.
“When compared to the rest of the world, we seem to be on a sound footing. The other positive indication that has now come from the US is that their second quarter growth figures are good and unemployment is going down,” he said.
Jaitley said the leaders from across the world, who attended the meeting, took stock of the global economy here besides addressing the set agenda of the scheduled sessions.
“Leaders gave explanations about what is happening at their end. As far as India is concerned, obviously last one month has been very choppy, including stock markets, predominantly for external reasons,” the minister said, stressing the need to distinguish between the real economy and transient factors.
To a query on whether concerns on Chinese currency and possible US Federal rate hike were raised at G-20 meet, Jaitley said comments were made from various quarters in this regard.
“The Fed hike remains a matter which the US will decide later this month. But, according to me, whatever situation emerges, that would be only a transient phase and therefore our response is that we have to strengthen our own real economy parameters,” he said.
Jaitley said the G-20 meeting has taken place at a time when the global economy is witnessing unpredictable growth prospects.
“Most of the economies are struggling both in terms of their growth rates and currency markets have gone through heavy fluctuations. We have taken this opportunity to strengthen our own policy framework and concentrate on the real economy.”
“It is essential that India grows if we want to create jobs and bring prosperity for our people. Economy has now opened up in a big manner and more sectors are open for international investments,” said the finance minister who also met Turkish businessmen during an interactive session here on the sidelines of G-20 meeting.
